You can think of dozens of reasons, but one of the biggest is that they don’t understand what bankers really do to earn their fees.

They see news of million-dollar bonuses and assume that financiers earn those bonuses by sitting around and playing Monopoly.

But you don’t earn massive fees by playing board games all day – it’s a process that takes years, which is one reason why bankers make the money they do.

And the infamous “pitch” has very little to do with it.

It’s All About the Pitch, Right?

The most common, wrong suggestion I’ve seen before is that “Bankers win clients by pitching them.”

But that’s like saying that you got into Harvard or Oxford by submitting a really good application – technically true, but not the full story.

Yes, the application is critical and if your essays suck, you’re screwed – but you got into a top school because you spent years developing the skills and experiences to do so, and you then presented them in the best possible light.

It’s the same with winning clients as a banker: your pitch needs to be on-point for you to win the deal, but the process of putting yourself in the position to pitch for the deal starts long before that.

What Really Happens

As you move up from Associate to VP and beyond, gradually you’re tasked with more and more sourcing work: finding potential clients, getting to know them, and then pitching for a deal when the time is right.

If you already work with a company on all their M&A deals and your bank has been advising them for the past 20 years, you’ll probably continue to do so in the future.

Like legacy admissions in university or Roger Sterling and Lucky Strike, it’s a good bet that you’ll receive the benefit of all that history unless you make a colossal screw-up.

So it’s more interesting to look at how you find new clients – companies your bank has never worked with before.

This entire process is more applicable to smaller firms than to bulge bracket banks, because there the “legacy” factor is high and you mostly work with huge companies that everyone already knows about.

But even at huge firms, you still need to find new clients because existing companies get acquired, merge, and go out of business all the time.

Lead Generation

In sales, a “lead” is just a potential customer – someone who might sign up for the products or services you’re offering.

It’s the same idea in banking, but since your leads are fewer in number and are worth much more, some strategies don’t work so well.

It may sound silly to even point this out, but I’ve actually seen some banks use Google AdWords to market themselves to clients and I have no idea why they bother.

All these methods are too impersonal – it’s like walking into Armani and having a robot display a list of recommended clothes for you rather than having a real live person greet you, chat for a while, find out what you’re looking for, and then suggest something good.

When the number of clients is low and the per-client value is high, you need to get very personal to make deals happen.

PE / VC / HF Referrals

One way to do this is to go through your friends on the buy-side, see what portfolio companies they have, what sectors they’re interested in, and who else they’ve been speaking with lately.

Let’s say you’re an MD who has worked with a private equity firm for 10+ years. At your next catch-up meeting with them, you might casually ask how their portfolio companies are doing (translation: are any of these companies ready to sell, refinance debt, or go public?).

If the PE Partner likes you and wants to give you business, he might refer you to the CEO or CFO and say, “Hey portfolio company, this banker’s good – you should get to know him.”

Or if a deal is imminent, he might tell you directly: “They’re going public next year, and the pitch is coming up next month – we’ll be sure to include you.”

Cold-calling is also more common at small and middle-market private equity firms, some of which are notorious for making their newly hired associates cold-call companies all day long.

Conferences

Bankers also spend a lot of time on the conference circuit, meeting with executives at events (CES, Davos, etc.).

These are like information sessions: if you can stand out from everyone else and then follow-up appropriately, your chances of success go way up.

The real action at conferences happens offstage, so bankers skip keynotes and panels and schedule as many 1-on-1 meetings as possible during the day.

Inbound

Wouldn’t it be nice if banks just called you when they wanted to hire someone?

When companies want to sell or raise capital, they sometimes contact banks directly – this scenario is much more likely when a lesser-known company wants to work with a bulge bracket bank and has no other way to get on their radar.

Sometimes investors also contact bankers directly and provide the introduction, especially if they’re pressuring the company to sell so they can realize their returns.

Wining & Dining: Building the Relationship

Once you’ve contacted or been contacted by the executives at this potential client, you need to build the relationship.

If it’s an inbound contact and they urgently need to sell or raise capital, you won’t do this and you may be asked to pitch for the business right away.

But if the deal is further off in the future, you need to take time to build trust and convince the CEO that you’re not just another Gordon Gekko or Patrick Bateman character waiting in the shadows to decapitate him and steal all his money.

You do that by:

Coming up with acquisition ideas and meeting with the executives to discuss what areas they might want to expand into.

Meeting casually for lunch or dinner to catch up on what the company has been doing and their future plans.

Being “on call” to answer whatever questions they have, whenever they have them.

The tricky part is that you don’t get paid for any of this – and the entire process could take years before you see any revenue.

Sure, making $10 million on a single deal sounds great – but if it takes 10 years of relationship building to get there, the NPV is much lower than $10 million.

This is the slowest and most extended part of the “client-winning” process, and if you’re not interested in relationships, this is where you’ll fail.

But if you like meeting and greeting and can’t stand Excel, then you might make a great MD – even if you’re a lousy analyst.

Deal Time

How does a company decide when it should sell, buy another company, go public, or raise capital?

Sometimes it’s forced to sell by investors who want to realize their returns (Amazon / Zappos) – going back to our theme of NPV, the longer an investment stays unrealized, the harder it is to get solid returns.

Other times the executives reach the decision themselves – the CFO looks at their cash flow projections and realizes their burn rate is too high, so they decide to raise debt or equity.

And still other times, bankers “plant” the idea in the CEO’s mind.

While you don’t have to plant this idea in a dream within a dream within a dream within a dream, you do have to be subtle about it – going out and blatantly pitching an LBO won’t work even if you really want a PE firm to buy the company you’re speaking with.

Instead, bankers are more likely to make casual references to private equity firms and leveraged buyouts elsewhere in the market when they meet with the company to discuss other topics.

Over time, if the CEO and Board buy into the idea or show interest, the bankers keep selling them on it and gradually start to reveal more and more information.

The best bankers – the true rain-makers – are the ones who are best at “selling” the company on a transaction, even if the management team had no interest initially.

Sometimes if a company has a special relationship with just 1 banker and has never spoken to others, it will skip the pitch and give the business to that banker.

But that’s more common at private and smaller companies where there’s not as much oversight from the Board of Directors – at anything bigger the Board usually requires the management team to solicit competitive offers.

At this point they would contact all the bankers they’ve gotten to know over the years and tell them what they’re planning, send over relevant financial information, and invite them to pitch for the deal.

Nope – most of the time the pitch book itself is irrelevant to winning the deal, even if you pulled 4 all-nighters to create it.

What matters is how much the company likes the senior bankers, what the senior bankers say, and how they say it – and what they say compared to the other bankers pitching for the deal.

Let’s say you go in and claim that the company is worth $500 million and that you can complete the sale process in 6 months. Then another banker goes in and says the company is worth $400 million and that the sale process will take 12 months.

You might assume that you’ll win since your claims are more aggressive and will result in a better price for investors – and sometimes that’s true.

But the CEO and other Board members/executives could also look at your pitch and think that your numbers are unrealistic and that you’re not being honest – especially if everyone else there is predicting lower valuations.

So you need to use a careful blend of salesmanship and pragmatism to win deals.

After the Pitch

There may be a clear “winner,” but more often than not, the company will follow up with multiple banks to see what the fee structures are like and what their recommendations are in more detail.

For smaller companies and deals, the fees make a bigger difference and sometimes a bank will win the deal by promising lower fees or a structure that rewards them for better results (e.g. 0.75% under $500 million and 1.5% for the amount above $500 million).

Most of the time, though, it comes down to all of the above factors and the company considers everything when making a decision.

If you think executives are rational just because hundreds of millions or billions of dollars are involved, nothing could be further from the truth – sometimes the more money that’s involved, the less rational the deal (AOL / Time Warner).

Sample Timeline

Putting everything together, here’s an example of how you, after you become a Managing Director, might meet a CEO, develop the relationship, and then pitch for the deal:

5 years ago you were having a catch-up meeting with a local VC and he mentioned that a tech startup in their portfolio was hot and would change the world of online media.

He gave you an introduction, so you met with the CEO, learned about his vision for the business, and got an idea of the company’s financial performance.

A year later, you caught up with the CEO once again and gave him an update on the capital markets and what IPOs were pricing at. The company was not yet cash flow-positive, but they had killer revenue growth.

The next year (3 years ago), the IPO markets were closed but the CEO wanted to use his stock to acquire smaller competitors – so you ran a buy-side M&A process for him over the course of 6 months. It never went anywhere since they couldn’t find anything good and got distracted by other issues.

Then, 2 years ago, the company finally turned cash flow-positive and started thinking about an IPO, which they told you about during your quarterly meeting with them.

Finally, a few weeks ago the CEO contacted you again just before another meeting and said that they are now serious about selling and want to hear your thoughts – so he invited you in to pitch for the deal.

Got Risk?

Not only did this process take 5 years, but there’s no guarantee that this planned sell-side M&A deal will even happen – or that the mandate will go to your bank.

Maybe no one will be interested; maybe the CEO will change his mind yet again; or maybe investors will pressure them to go public instead.

And you ran a failed buy-side M&A process for them a few years ago.

This is why investment banking is such a tough business: you could do everything right for 5 years and still lose the deal because your fees are 0.1% too expensive, or because the CEO gets emotional and happens to like an unknown banker more.

Wait, This Sounds Boring!

One time I was explaining this process to a friend who was still in university and he said, “Wow that sounds boring – I’d rather do modeling and analytical work.”

If your IQ is higher than your EQ, it may not sound too appealing to develop relationships like this and constantly pitch for new business.

You learn a lot at first and valuing and modeling companies seems exciting when you’re new, but they become routine and boring once you’ve done them 500 times.

We’re more interested in stories and inter-personal drama than we are in staring at Excel all day – so even if the process above doesn’t sound interesting right now, you may change your mind in a few years.

You might assume that you should move to the buy-side if you’re not interested in any of this, but that’s only partially true – in PE and VC you still do a lot of relationship-building, meeting with new companies, and so on.

So if it’s really not your cup of tea, think about hedge funds or trading – where you can make bank without talking to people or leaving your 8 computer screens.

Comments

just wanted an overview of ib research. Wat would one do as a research analyst in ib? Would it help you get into mainstream ib? I have received a research role offer at a BB. Considering that I was previously working in operations, would it be a step ahead or would an alternate route seem better?

If you’re talking about equity research that is a separate topic entirely and will be featured here in the future; it’s more about following companies and writing reports vs. IB which is all deals. There is some overlap but it is not terribly common to make the switch. It is much better than operations.

This is not equity research. It is ib research where in reports are created based on requests made by bankers. Reports may be industry based or company based. They might require info about a specific company, etc, and these reports are researched and written based on the requests of bankers. Would this kind of work be considered in case I land an m and a interview?

One more question. Would a mid office role like the above mentioned one be better than a graduate programme offered by banks? What exactly does one in a graduate programme do? Would I be better off trying for a graduate program or take up this offer?

Slight Correction to the point that mainstreet hates wallstreet for the bonuses they pay financiers. Financiers they refer to are 95% traders, structurers and sales. Hardly anyone blames investment bankers per say but mainstream tend to group traders as investment bankers thus they get the bad rep as well.

Pretty much, up or out. I want to cover HFs but so far no volunteers and it’s much harder to generalize with them whereas most IBs/PEs are very similar. But it is on the list and hopefully coming up soon.

1. For deals involving the raising of capital, I believe the fees are deducted directly from the proceeds or when the swaps take place. For IPOs, the underwriter will deduct the fees from the proceeds. For M&A deals not 100% but I feel it would be a separate straight cash invoice? Someone kindly enlighten.

2. After going public there are a myriad of services that can be provided. Advisory on M&A, underwriting services, and raising capital to name a few.

3. I don’t really understand exactly what you mean by a “business broker”- but bankers, while being middlemen, are to a certain extent necessary in today’s world. The proper deal progression and things like due diligence are unique (though not exclusive) with the profession and commands a certain degree of trust and authority in the composition of how business is conducted.

Thanks Disco, this clears a few things up. A business broker is a lot like a real estate agent but instead of houses/properties they deal with businesses. People who want to sell their delis, gas stations, pizzerias, laundromats, etc or want to buy one use them. They are basically the middlemen, helping with valuation, due diligence, and closing the deal. It seems a lot like banking, although on a much smaller level.

1) For a sell-side M&A deal you would pay them from the proceeds you get from selling the business; otherwise for a buy-side deal you would pay them your own cash.

2) Most bulge brackets are advising huge companies that rarely sell – they buy other companies, raise debt or equity, or sometimes just hire the bank to “perform services” for them over time and update them on recent developments, potential transactions, and so on.

3) Yes they’re similar, the difference is business brokers are more focused on small and family-owned businesses.

Another great article, perhaps one of your best. Can you elaborate on your point that a lousy analyst could make a great MD? I’m interested in going into banking/finance, but I think I would make a lousy analyst, and I definitely more an EQ than IQ kind of person. What’s the career path for this kind of person? How do you go from being a lousy analyst to rain making MD?

A little on my background:

I’m entering a commercial/corporate training program next year. An MD at Goldman who I’ve become fairly close with said this would be a great place to start. I’d like to land in institutional bond sales in the near term.

Most likely you would start out at the associate level / go in directly from an MBA program instead… you still need math skills there but not as much as an analyst does. And then you would just move up the ladder within IB. Moving in from another industry could happen but it’s unlikely unless you do an MBA or happen to hit a boom market where sales/other fields to IB is a common move.

Brian, you are the best. Telling it like it is, in an intelligent and non-offensive manner.

I think you also play a huge role in making the industry more transparent and accessible (I read accounts of kids getting in based on your insights), and this fact will eventually have wider economic consequences.

I hope you’ll capitalize on it (even more than you justly do now), and hope to be there nearby somewhere, as your avid follower from abroad.

I have an internship decision between top prop shop and Non-BB (still well known bank, not boutique) S&T role (Rotational) in London.

What are the main considerations and pros and cons I should note in deciding between the two (I’m thinking more of exit opportunities, conversion rate, etc)? I’m leaning towards the prop role just because I like prop more, but would like to know your opinion wrt either choice.

For an internship I would go with the bank for the brand name… for internships brand name is almost more important than what you do, the work is similar for S&T anyway and pay/hour differences are negligible.

Truly the best article about this topic I have read so far! I was an investment banking intern for 6-month and that’s exactly my impression about the business. Nonetheless, the MD’s went crazy about little mistakes in the pitchbooks ;)

The structure of the site is going to change again??? How so? I hope none of these articles or the BIWS stuff would be removed or taken down, right?

Great article once again! Greatly enjoyed reading it. You mentioned once you reach MD, it’s either up or out… how do they measure your performance like how many deals and how much $ you bring in considering these are all based on TIME + Relationship building? Do banks set a cap as to something like you’ve got to bring it $100MM a year or something and if you’re early on and you bring in a $1B deal, then you can relax for the next 9 years?

Everything will remain forever but I may change it to look more like Wikipedia or Investopedia.

Usually they measure performance based on deals in the pipeline and fees you’ve earned… it really varies by bank and they understand it takes time to bring in clients, so they don’t expect you to make millions right away. Usually there’s some type of “grace period” where they let you develop relationships, but if you’re not getting results within at least a few years you’re let go.

Just wondering – about the “sample timeline” in article – I have seen and spoken with MDs who had within span of 5-10 years switched banks and that too in multiple geographies (NY,London,HK,even Tokyo) at Director/MD level.
One of the MDs in like 3-4 years went from a middle market to MS-to-GS-to-CS and then to a well known boutique.Really doubt if its a possible even for a “star” to develop relationship at these BB (quite often in multiple geographies) at such a pace?
Or is it just the “legacy effect” in the above case ?

It is a bit of both… MDs are sort of like free agents in sports, they can take their Rolodexes with them elsewhere and maintain their own client relationships as they go. So it’s not as if they’re always starting over from scratch when they move elsewhere.

I’ve done info interviews with an MD at a BB and he’s suggested that I try to get an internship with a boutique/PWM firm this summer and then come back to him in the fall for recruiting for my junior year. I don’t have CapIQ access so I was going to ask him to generate a list of firms in my area to help with my search. I was wondering if you thought that was appropriate or if it would be weird/annoying?

I feel like I skipped over the first few stages of investment banking careers. I’ve only been a banker for less than three years now and the vast majority of what I’ve done is the stuff in this article and very little of the modelling work (although I’ve done a little more on the pitchbook side)

The reason for this is that I’m with a very small boutique where I very quickly became part of the client engagement efforts and I now have a small collection of CEOs in my coverage industry that I’m on a first name basis with.

Here’s my problem – I’m still an Associate but when I tried moving to a bulge bracket bank, I got interviews and good reviews but also got feedback that I didn’t fit in. Essentially, they didn’t want someone who was doing VP/MD type work doing what a normal Associate would do. This has been frustrating because the upside at my current firm has been limited and plus I’d like to work on the big deals in the industry I cover. I know a lot about the big companies and their industry but usually never get a chance to work on their major deals.

How do I break out of this? Convince them to hire me as a VP instead? Or find another path?

From my observations, most people do banking as an analyst for 2-3 years then move to the buy side or corporate development and do that for 2-3 years and then go to business school to do something totally different like marketing. Is it just me or have you observed that too? If this is the case, what is the draw to banking and the difficult life when most people never even stay nor return to the field in the long term?

I met this one person who got his jd and went to work at a law firm before moving into compliance at a bb. She worked in legal for 5 years, has no mba, but his bb let her get into the firms ibd associate program. How is that?

If a person has been working in a back office function for 3-4 years since undergrad and gets the opportunity to get into a BB ib analyst program, how valuable do you think that is? After the 2 years of ib, they would have had like 6 years of experience in which only 2 of those years was doing IB.

It was VERY disturbing and there were a lot of things I hadn’t even realized, despite being in finance back in 2008 when everything happened.

To be honest I almost thought about just shutting down everything here after seeing it – only reason I feel less guilty is that M&A, which this site is focused on, really had nothing to do with CDOs, predatory lending, etc.

But yes, definitely one of the best documentaries ever and much better than Wall Street 2.

I just discovered your website and must say that so far you have made a GREAT job. It is a very good insight for people outside investment banking, articles are well structured and simple/not boring while being quite informative. I have a general question to ask which I believe is most appropriate to be asked here. So, here we go; After doing some research for M&A/Corporate Finance jobs, I have encountered that the BigFour auditors also offer transaction/financial advisory services (M&A, restructuring, divestments etc). Are these Big4 also considered serious competitors to an investment bank for an M&A deal? Can/Do they offer the same level of expertise in this field as IBs? Is there a key competitive advantage/disadvantage they have? One advantage that just came on top off my head could be due-diligence. Sorry if I’m asking too many questions, but I do not really see where they stand in the M&A/Corporate Finance stage.

Are these Big4 also considered serious competitors to an investment bank for an M&A deal? Sometimes? But I think they are viewed differently because the TAS group works with bankers and client companies on transactions, assisting with valuation, due diligence, and sometimes effectively acting as the M&A advisor on the deal.

Can/Do they offer the same level of expertise in this field as IBs? Perhaps though I believe people in IBs ( I may be wrong) may have more experience that is useful to clients

Is there a key competitive advantage/disadvantage they have? not sure about big 4’s fees but the potential size of the transaction shd justify some IB’s fees. If a transaction is smaller, clients may not want to pay IB’s fees

What if a client wants to work for the Investment Bank that structured their deal? Is this possible or a conflict of interest?…I.E. My company is looking for an investment bank to structure and complete a transaction for them…How should I approach the investment banker(s), that I’m interested in investment banking and that I would like to join their team?

Hi there IM, I have read the article and basically, that’s what I do almost on a daily basis but still, nothing works. I have not received even 1 account. The pressure is mounting on me, and of course i feel frustrated. What should I do?

What is pretty amazing about the biz dev and deal sourcing process in IB is that it has been the same pretty much since the 70s. We are an example of an industry where technology has had very limited impact in terms of the way we go about our business (the technologies that materially changed the M&A and IPO markets for bankers are basically Excel/Powerpoint and databases like Capiq/factset — pretty sad). It would seem like we are ripe for some type of disruptive change in our business model, yet it is hard to see how technology can really uproot the deal sourcing process described in this article.

I just devour hours of reading on this website, it is amazing. The prospect of working at a BB firm is exciting and I have pondered for long on what exactly I would want to do. I guess its really cool that you have said, do you want to deal with numbers or people? Makes it much easier for me to make a decision and its a way of thinking about an IB career or any career in general in a totally different way.
Cheers!

Are sales/social skills required to succeed in PE as well? How do the job scope of mid-level and senior level people in IB and PE in terms of relationship-building/developing, winning clients and client interaction? Do they apply to PE employees as well?

If you’re not too sociable, you may want to look at research roles at AM (buy-side) or associate roles at PE firms where you look and analyze investments. However, as you progress in your career in PE you will need to source deals so sales/social skills are crucial, likewise with VC. HFs – as traders they do socialize quite a bit, but you can look at quant roles where the traders there maybe more quiet and less salesy.